Is MiMedx Group (NASDAQ:MDXG) Using Debt Sensibly?

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Simply Wall St
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Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We note that MiMedx Group, Inc. (NASDAQ:MDXG) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for MiMedx Group

What Is MiMedx Group's Debt?

As you can see below, MiMedx Group had US$47.9m of debt at June 2021, down from US$65.2m a year prior. But it also has US$85.0m in cash to offset that, meaning it has US$37.1m net cash.

debt-equity-history-analysis
debt-equity-history-analysis

A Look At MiMedx Group's Liabilities

The latest balance sheet data shows that MiMedx Group had liabilities of US$50.6m due within a year, and liabilities of US$51.2m falling due after that. Offsetting this, it had US$85.0m in cash and US$47.4m in receivables that were due within 12 months. So it actually has US$30.6m more liquid assets than total liabilities.

This surplus suggests that MiMedx Group has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that MiMedx Group has more cash than debt is arguably a good indication that it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if MiMedx Group can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, MiMedx Group made a loss at the EBIT level, and saw its revenue drop to US$261m, which is a fall of 7.0%. That's not what we would hope to see.

So How Risky Is MiMedx Group?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that MiMedx Group had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through US$25m of cash and made a loss of US$83m. Given it only has net cash of US$37.1m, the company may need to raise more capital if it doesn't reach break-even soon. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 1 warning sign for MiMedx Group that you should be aware of before investing here.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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